For any financial institution that has a permanent establishment in Newfoundland and Labrador and whose taxation year begins after October 31, 2008, the capital tax is now administered by the federal government. Corporations affected by this change must complete Schedule 305 to determine their capital tax payable.
The term “financial institution” is defined in subsection 66.1(1) of the Income Tax Act, 2000 of Newfoundland and Labrador. Based on this definition, banks, trusts and loan corporations are considered to be financial institutions.
Schedule 305 is used to calculate the capital tax amount that should be posted to line 518 of Schedule 5, Tax Calculation Supplementary - Corporations.
According to section 66.4 of the Income Tax Act, 2000 of Newfoundland and Labrador, only investments made in related financial institutions with a permanent establishment in Newfoundland and Labrador should be included in the total investments used to reduce the capital for the year.
The capital deduction for the year is $5,000,000 and related financial institutions have to allocate this deduction among themselves. A corporation is eligible for the deduction only if the capital for the year of the group it belongs to is $10,000,000 or less. Otherwise, the corporation cannot claim this capital deduction.
Schedule 306 is used to allocate the capital deduction for the year among corporations that are members of the related group. Data used to complete this schedule comes from Schedule 9, Related and Associated Corporations Workchart (Jump Code: 9 WORKCHART).
For more details, consult Part II.1 of the Income Tax Act, 2000 of Newfoundland and Labrador.
Tip: For more information on the T2 Data Connection, please consult the T2 Data Connection guide, available in the Professional Centre.